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Stock Market Inconsistencies: Disney & General Motors


The stock market is known for its efficiency in pricing stocks based on available information. However, there are times when the market seems to defy logic and leave investors scratching their heads. Recent cash-return decisions by Walt Disney and General Motors (GM) provide a prime example of such inconsistencies.

Walt Disney’s Dividend Return

In what seems like a lackluster response, Disney announced the return of its dividend this week, only to be met with a lukewarm reception akin to that of an Ant-Man sequel. Surprisingly, Ant-Man’s latest installment, “Quantumania,” holds the unfortunate distinction of being the lowest-rated Marvel film on the respected movie review site, Rotten Tomatoes.

The stock, trading at around $92.50 before the announcement, remained virtually unchanged at $92.40 in late Friday trading.

GM’s Dividend Increase and Share Buyback

GM, on the other hand, decided to increase its dividend payout. The company will now pay shareholders 12 cents per quarter, up from nine cents. Additionally, GM unveiled plans for a massive $10 billion share buyback program. To date, approximately $7 billion has already been allocated towards repurchasing shares.

While GM’s stock fared slightly better than Disney’s, with a 12% increase since the announcement, it still finds itself down nearly 20% over the past year. Furthermore, with the completion of the share buyback, the outstanding shares were reduced from nearly 1.4 billion to approximately 1.1 billion, signifying a 17% reduction.

Curiously, GM stock is now valued at 3.9 times its estimated 2024 earnings per share, compared to approximately 4.7 times before the buyback. This apparent devaluation follows positive news, which seems counterintuitive.

Unraveling the Market Conundrum

According to market theory, the stock market should promptly reflect all available information in stock prices. However, it appears that there may be underlying factors that the market is privy to, but remain hidden to the average observer. Perhaps there are indications of deteriorating cash flows for Disney and GM, leading to doubts about the sustainability of their dividend payouts. This uncertainty could be influencing investor sentiment.

Another potential reason for investor skepticism could stem from historical events. Both GM and Disney suspended their dividend payments in recent years, with GM halting its payouts in March 2020 during the pandemic, and Disney following suit in December 2019.

The stock market’s inconsistencies serve as a reminder that while it aims to embody rationality and efficiency, there are instances where it behaves in confounding ways. Investors should tread cautiously and explore all available information before making financial decisions based solely on apparent market indicators.

The Impact of Dividend Suspension on GM and Disney Stocks

Both General Motors (GM) and Disney recently made the decision to suspend their dividends. This move has raised concerns among investors, as these two companies were known for their generous payouts.

Before the suspension, GM was paying out 38 cents per share each quarter, while Disney was paying 88 cents. However, following the suspension, Disney’s payout has significantly decreased to just 15 cents per quarter, resulting in a yield of 0.6%. Similarly, GM’s new dividend yield now stands at approximately 1.5%.

One of the reasons why these stocks may not be performing as well as expected is due to their low yields. In comparison, the S&P 500 yields an average of 1.8%. Among the 400 companies in the S&P 500 that offer dividends, the average yield is nearly 3%. Both GM and Disney’s current yields are below these benchmarks.

In the past, when Disney was paying around $3.50 per year, its shares were yielding between 2% to 3%. Additionally, GM stock had a yield of approximately 4% in late 2019. These higher payout levels generated more excitement among investors.

Despite the decrease in dividends, it is important not to overlook either stock. Dividends are not the only means of cash return to shareholders. GM, for instance, has been actively repurchasing its stock for years. This strategic move enhances cash returns and potentially leads to higher stock prices.

If GM stock were still trading at 4.7 times earnings, for example, shares would be valued at almost $40 each. In this scenario, investors could sell a portion of their stock to create an alternative income stream similar to a dividend payout, while maintaining their overall position in GM stock.

However, it is worth noting that GM stock has yet to demonstrate significant growth over time. Share prices have remained relatively stagnant since around 2013.

To potentially boost the stock’s performance, GM could consider increasing the amount of cash flow allocated to dividends. Doing so may attract income-oriented investors and generate greater interest in its shares.

While the suspension of dividends by GM and Disney has caused initial concerns, there are still opportunities for these stocks to rebound. Investors should keep a close eye on any future developments, as changes in dividend policies and overall stock performance could significantly impact their investment strategies.


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